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Glencore and Xstrata announce $90 billion merger

Glencore, the biggest commodities trading company in the world, has agreed to buy mining firm Xstrata in one of the largest ever all-share transactions in the mining sector, though shareholder opposition may yet scupper the deal.

Glencore xstrata 2012 02 07Enlarge
Glencore chief executive Ivan Glasenberg said the merger would create “a new powerhouse in the global commodities business,” with the announcement coming as Xstrata revealed a 20% increase in profits for 2011, to $5.9 billion. (MIKE CLARKE/AFP/Getty Images)

Glencore, the world’s biggest commodities trading company, agreed on Tuesday to buy mining firm Xstrata in one of the largest ever all-share transactions in the mining sector.

However two of Glencore’s largest independent shareholders have insisted that the terms of the combination “clearly undervalued Xstrata,” and vowed to oppose it.

The deal, described by the two firms as a “merger of equals,” would create a new company, Glencore Xstrata International PLC, with a market value of almost $90 billion, The New York Times reported.

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Glencore already owns a third of Xstrata, and the deal for the remaining stake is valued at almost $62 billion.

Glencore chief executive Ivan Glasenberg said that the merger would establish “a new powerhouse in the global commodities business,” with the announcement coming as Xstrata revealed a 20 percent increase in profits for 2011, to $5.9 billion, according to the BBC.

Glasenberg is to be deputy chief executive and president of the combined group, while Xstrata chief executive Mick Davis will take the senior role in the new firm.

Glencore, based in Baar, Switzerland, trades metals, crops and fuels in the financial market, while the Zug, Switzerland-based Xstrata owns vast coal, copper and nickel reserves across Africa, central Asia and South America.

According to Bloomberg, Glencore has offered Xstrata shareholders 2.8 of its own shares for each share in the mining company. Shareholders will be able to vote on the merger in April, once Glencore’s full year results have been published.

Two of Glencore’s largest independent shareholders, Standard Life and Schroders, have insisted that the terms of the deal “clearly undervalued Xstrata,” according to the Guardian.

In a statement, Standard Life, which holds 63.6 million shares in Xstrata (or 1.92 percent), said it would oppose the merger unless the terms of the combination were “materially improved,” while Shroders also said it would vote against the deal, as it was currently “not compelling.” 

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http://www.globalpost.com/dispatch/news/business-tech/120207/glencore-and-xstrata-announce-90-billion-merger